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INJECTIONS
saving
investment
taxes
government spending
imports
exports
1. Saving and Investments:
1) Expenditure approach:
adds up all spending to buy final goods or services
produced within a country over a period of time
Total spending can be broken down into 4 components:
Consumption ( c ): includes all purchasases by households on
final goods and services in a year (except housing).
Investment ( I ): spending by firms on capital goods (machines,
equipments, buildings). or spenidng on new contructions (housing and
other buildings).
Goverment Spending (G): refers to spending by the goverments
within a country. Includes purchases by the gov. of factors of prodctuin
and investement by the goverment (public investement) ususally on
capital goods including roads, airports, building hispitals and schools.
Net Exports [exports minus imports] (X-M): refers to the value
of all exports minus the value of all imports.
If we add the 4 components ( consuption, investment,
goverments pending and net exports) we obtain a measure of agregate
output now as gross doemstic product (GDP).
GDP: Is the market value of all the final goods and services priduced within
a country during a specific period of time.
It includes soending by the 4 components.
One of the most commonly used measures of the value of
aggregate output.
2) The income approach:
adds up all income earned by the factors of production within
a country during a specific time period. That is:
rent earned by land
wages earned by labour.
intrest earned by capital
profits earned by entrepeneurship
All these have a finite life- they get worned out and some
are thrown away (this capital is called depreciation).
Each year the worned otu capital must be replaced.
Meaning that in any year of the total new proudction of
capital goods a part goes to replacing capital goods that have
been thrown out and the rest are new additions of capital goods.
Investment: spending by firms to buy capital goods.
Gross investmen: total investment. Can be divided in 2 parts:
1. that part that goes towards replacing the thrown out capital
goods (depreciation).
2. the part that consists of new additions of capital goods
known as as net investment.
In GDP, the I stands for total investment ( depreciarion + net
investment)
As it measures an economys total outpu, theregore includes
total spengin on capital goods.
NDP: is an alternative way of measuring aggregate output,
and uses net investemt to arrive to the net domestic production.
NDP= C+ In +C+ X-M (In= net investment)
NDP= GDP - depreciation
GDP: includes total spending on capital goods uncluding
replacement of depreciated capital and new additions to capital
goods.
NDP: here net investement is used to arrive to the ent
domestic productt (NDP).
WHY?
1. national income statistics do not accurate measuure the true
value of output produced in an economy.
2. Standards of living are related to a variety of factors which are not
accounted for in GDP and GNI measusures.